INDIAN INSTITUTE OF MANAGEMENT INDORE

FINANCE PROJECT REPORT

FMCG SECTOR
FINAL SUBMISSION
Submitted to

Prof. Kanagraj & Prof. Hariprasad

29 March 2008

SUBMITTED BY: Group 2 Section B PGP 1 Ashish Saini Avinash Thagela Balasubramanian Ranganathan Bhattar Naveen Kumar C Srikanth Charkha Siddharth Rajkumar Devesh Taparia Meghna Panwar Mohit Verma Pavan Naik B.

Table of Contents
* Declaration

* List of Figures and Tables * Introduction: FMCG Sector in India * Part I & II: Corporate Governance Analysis & Stockholder Analysis
Management Interaction with Financial Markets and Ownership & Shareholding patterns The Firms and Society

* Part III: Market Analysis of risk and return in the FMCG industry
Calculating Top-Down Betas Estimating default risk and Cost of debt Cost of Equity Market value of equity: Estimating the Cost of Capital:

* Part IV: Measuring Investment Returns

Accounting Returns on Project Characteristics of the Project in the Industry ROC and ROE Analysis Economic Value Added

* Part V: Capital Structure Choices

Advantages of Taking Debt Disadvantages of Taking Debt Ability to Service Debt

* Part VI: Optimal Capital Structure

Current cost of capital and Financing Mix Optimal Mix Effect of changing the debt ratio Effect on stock price at optimal debt ratio Constraints on the company Constraint on the rating Sensitivity Analysis (The downside EBITDA)

* Part VII: Mechanics of Moving To the Optimal

Path to the Optimal

Influence of Macro Economic Variables on Firm Value and Operating Income

* Part VIII: Dividend Policies * Part IX: Framework for analyzing dividends
Affordable dividend and actual dividend payout Management Trust and Changing Dividend Policy Dividend Comparison with sector

* Part X: Valuation
Historic Growth rates Discounted cash flow Comparative market valuation Valuation results Sensitivity Analysis Operating and Financial leverage comparison

* Appendix
Shareholding & Ownership patterns

List of Figures
Figure 4.1: ROE Percentage Figure 4.2: ROC Percentage Figure 5.1: Graphical representation of Debt-equity representation Figure 10.1: Graphical comparison of firm valuation using DCF and market multiples method with CMP Figure 10.2: Operating and Financial leverage comparison

List of Tables
Table 1.1: Chief Executive Officers (CEO)/Chairman & Managing Directors (CMD) Table 1.2: Board of Directors Table 1.3: Shareholding pattern Table 3.1: , , Se values for FMCG companies Table 3.2: R2 values for FMCG companies Table 3.3: Cost of Debt Table 3.4: Cost of Equity Table 3.5: Market Value of Equity Table 3.6: After Tax cost of Debt Table 3.7: WACC for FMCG companies Table 4.1: Characteristics of Projects in FMCG sector Table 4.2: Comparison of ROE and ROC to COE and COC Table 4.3: Calculated Equity EVA Table 4.4: EVA for 9 FMCG firms Table 5.1: Debt-equity ratios Table 5.2: Debt obligations of the companies Table 5.3: Depreciation/ Firm book value for the companies

Table 5.4: Interest Coverage ratios Table 5.5: Free Cash Flow/ Total Debt ratios Table 5.6: EBITDA/Firm value Table 5.7: Variability Of Operating Income Table 5.8: Deviation of Operating Income Table 6.1: Current cost of capital and Financing Mix Table 6.2: Optimal Mix Table 6.3: optimal ratios and value without constraints for each firm (Assuming no growth) Table 6.4: Optimal ratios and value without constraints for each firm (Assuming perpetual growth) Table 6.5: Effect on stock price at optimal debt ratio Table 6.6: Constraints on the company Table 6.7: Sensitivity Analysis (The downside EBITDA): Table 7.1: Path to the Optimal Table 7.2: Influence of Macro Economic Variables on Firm Value and Operating Income Table 8.1: Dividend Payout details Table 9.1: Average FCFE and Dividend Payout Table 9.2: Comparison between ROE, COE and ROC, WACC Table 9.3: Dividend Comparison with sector Table 10.1: CAGR of the companies Table 10.2: Comparison with DCF and Market multiple valuations with market price of stock Table 10.3: Sensitivity analysis of FCFE valuation using different growth rates

Declaration
We hereby declare that the following project has been successfully completed as per requirements by Group 2 of Section B PGP1 in partial fulfillment of the course Finance-II. In the process, we have used secondary sources like Capitaline, Prowess and few websites like bseindia.com and nseindia.com along with the companies annual reports for our analysis.

The name of the participants and the corresponding companies on which each one of us has worked is given in the following table.
Name of the Participant Ashish Saini Balasubramanian Ranganathan C Srikanth Devesh Taparia Mohit Verma Avinash Thagela Bhattar Naveen Kumar Charkha Siddharth Rajkumar Meghna Panwar Pavan Naik B. Company Godrej Consumer Products Ltd. Colgate Palmolive Ltd. Hindustan Unilever Ltd. (HUL) Collation Work on all companies Marico Industries Ltd. Britannia Industries Ltd. (BIL) ITC Ltd Nestle India Ltd Dabur India Ltd Glaxo Smithkline Consumer Healthcare Ltd Signature

Date: 29-Mar-08

FMCG Sector in India

The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. It has a strong MNC presence and is characterised by a well established distribution network, intense competition between the organised and unorganised segments and low operational cost. Availability of key raw materials, cheaper labour costs and presence across the entire value chain gives India a competitive advantage. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products. Growth is also likely to come from consumer 'upgrading' in the matured product categories. With 200 million people expected to shift to processed and packaged food by 2010, India needs around US$ 28 billion of investment in the foodprocessing industry. Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector.

Companies under study:

(a) Britannia Industries Ltd. (BIL) (b) Colgate Palmolive Ltd. (c) Dabur India Ltd. (d) Glaxo Smithkline Consumer Healthcare Ltd. (e) Godrej Consumer Products Ltd. (f) Hindustan Unilever Ltd. (HUL)

(g) ITC Ltd. (h) Marico Industries Ltd. (i) Nestle India Ltd.

PART I & II: Corporate Governance Analysis & Stockholder Analysis A. Management
Due to the prevalent problems associated with agency issues, when analyzing a company it is important to understand the relationship between managers and stockholders.

Chief Executive Officers (CEO)/Chairman & Managing Directors (CMD)

Britannia Name Age Years at the Company Years as CEO Total Compensation Ms. Vinita Bali 51 2 years 2 years 24,692,63 0 Col-Pal Mr. Ian Cook 55 32 Years 1 year NA Dabur Mr. Sunil Duggal 50 13 years 6 years 35,693,52 9 Godrej (GCPL) Mr. Adi Godrej 65 Founder Founder 25,293,00 0 GSK (CH) Mr. Zubair Ahmed NA 2 years 1 year NA HUL Mr. Douglas Baillie NA 30 years 2 years 45,906,56 0 ITC Mr. Y. C. Deveshwa r 61 40 years 12 years 28,725,00 0 Marico Mr. Harsh Mariwala 58 33 years 17 years 16,992,45 5 Nestle Mr. Martial Rolland NA 20 years 3 years 43,671,00 0

Table 1.1: Chief Executive Officers (CEO)/Chairman & Managing Directors (CMD) It is interesting to note that overall the CEOs have a long history with their respective companies averaging about 21 years as employees and 5 years as CEOs. While it is likely that their years of inside experience amassed them sharp understandings of their companies it is difficult to gage their efforts in maximizing firm value. The power of the CEOs is certainly manifested by their large compensation packages averaging Rs. 3 crores in 2007. The remuneration package includes salary, superannuation funds, stock options, etc. Their power, however, does not emanate from their stockholdings, which is comparatively less. This separation of management and ownership detracts from the

power that stockholders have over the CEO and suggests little incentive for the CEOs to focus on increasing shareholder value.

Board of Directors
Britannia Number of members Insiders 14 1 Col-Pal 8 4 Dabur 10 3 Godrej (GCPL) 8 2 GSK (CH) 11 3 HUL 10 5 ITC 12 4 Marico 9 7 Nestle 9 3

Table 1.2 : Board of Directors Surprisingly, the Boards of Directors have very few insiders and are therefore less likely under the influence of the CEOs. There are a number if independent and non-executive directors who are basically eminent personalities of the industry. For most boards, however, about half the members are CEOs or high-position management personnel at other organizations. Therefore, it is likely that their loyalties as board members of the FMCG companies will really depend on whether or not the FMCG Companys CEO sits on the board of the company they manage. Because they sit on each others boards, they are not truly independent monitors and cannot be fully protecting shareholders interests. In addition these people most probably will not have the time, information and interest in being involved with internal issues.

B. Interaction with Financial Markets and Ownership & Shareholding patterns

A careful comparison of all these companies is shown below:
Godrej (GCPL) 22584407 6

Britannia Total Shares 23890163

Col-Pal 66636481

Dabur 86402297 3

GSK (CH) NA

HUL 22068319 77

ITC 37551788 60

Marico 60900000 0

Nestle 96415716

Shareholders Demat Share

24912 11651339

136012 58123354

104866 85543332 9

93931 11024947

NA NA

417563 96458295 8

NA NA

18932 NA

45091 43749720

Table 1.3: Shareholding pattern

Britannia
The company is listed in both Bombay Stock Exchange and National Stock exchange. NSE: Average trade volume 10120 / Total volume 2540067. BSE: Average trade volume 6631 and Total volume 1664448. Although there are a total of 23890163 shares, 11.52% of shares are held by Foreign Institutional Investors and 18.27 held by individual shareholders. The total public share holding is 49.04%. The marginal investor is promoter group (Foreign body) here who has majority of share (51%) and can influence the market price of share. Also no individual has more than 4% of share which is a good sign. Institutional Investor contain 29% of share which consists of insurance, pension fund etc. which means apart from promoter share rest of the share has been distributed in market equally i.e. no one is having major stake apart from the promoter. Quarterly, Half-Yearly and Annual Results: Quarterly results including half-yearly results are published as per the Listing Agreement in leading newspapers, i.e., Financial Express (all editions) and Pratidin (Kolkata edition). The annual audited accounts are likewise published. The quarterly and the half-yearly report are not separately sent to each shareholder. Following firms are main investor in Britannia Industries: M/s Boribunder Finance and Investments Private Limited (Boribunder), M/s Flora Investments Company Private Limited (Flora) and M/s Giltedge, Finance and Investments Private Limited (Giltedge).

Colgate Palmolive

CPIL is listed on both NSE and BSE. Traded volume as on Feb 1 2008 was 280,246 on NSE and 25,800 on BSE. ColPal India does not have listing in foreign markets. Colgate-Palmolive Co. USA, Colgate-Palmolive (Asia) PTE Ltd, and Incorporated together hold 51% of the shares. Total shareholding is 136012, out of which % held by institutional investors: 20.98%

Dabur
Dabur India Ltd. is a Mid-cap company on which investors have been bullish in recent times. Of late, Analysts have shown keen interests in the market valuation of the firm. For e.g. in a very recent report dated January 30, 2008, IDFC SSKI has recommended outperformer rating on Dabur India based on its competitive business model with its right mix of stable businesses (hair care, health supplements) and strong growth drivers (oral care, foods, international business, health & beauty retail). Dabur is listed on both NSE and BSE. The total numbers of shares are 864022973 out of which the public share holding is 29.19% and 74.31% of total shares are held by the promoters. The promoter group is the marginal investor in case of Dabur India Ltd. with nearly 71% of the total share holding. Also, no individual person in the Promoters group has more than 1% of the shareholding. This is a healthy sign. Also, no major activity has taken place from the marginal investor so as to influence the actions of other investors. Any transaction by the insiders has regularly been reported to SEBI hence there has been no lapse at that end.

Godrej
The Companys shares are listed and traded on the NSE and BSE. The GSPL stock saw an average daily trading of 54,647 shares on the BSE and 61296 shares on the NSE for FY06-07. Total numbers of shares held are 225844076 and out of these 67.81 shares are held by the promoters and 17.81% by the FIIs and only 9.51& by the Indian public. Small investors with 1-500 shares constitute around 90% of the firms shareholders. GCPL does not have any outstanding GDRs/ADRs/warrants/convertible instruments.

GSK Consumer Healthcare

The total numbers of shares are 42055538 and of these 43.16 % are held by the promoters, directors and persons in control of power. Out of the remaining, FII contribute 9.34% and public constitutes 25.96%. Analyzing the fund holding pattern, 25 schemes hold GAK Consumer Healthcare Ltd. in their portfolios.

HUL
The total number of shares are 2206831977 and 51.42% of the shares are held by the promoters and directors and people in concert or control. Unilever PLC has 33.70% of the total shares. FII constitute about 12.41% of the remaining. 11.88% shares are held by different schemes under the fund holding pattern.

ITC Ltd
The total numbers of shares are 3,75,51,78,860. Banks and financial institutions and insurance co and mutual funds constitute for 36.19% and the foreign companies own 32.19%. 14.34% is held by the FII. The shareholders who have more than 5% share, like UTI and LIC have their representatives on the Board and take part in the decision making process.

Marico
Marico is listed on Bombay Stock Exchange (BSE), Mumbai and National Stock Exchange (NSE), Mumbai. To ensure a proper channel through which price-sensitive information is managed in the organization, the company has devised a Code of Conduct and appointed a Compliance Officer. There is also a Share Holding Committee, constituted by Board of Directors, to specifically look into the redressal of shareholders and investors complaints relating to transfer of shares, non-receipt of balance sheet, non-receipt of dividends etc. Insiders: After going through the detailed structure of the share holding pattern, it is certain that there are no Insiders in the company. Majority of the shares are held by the CMD of the company. Next highest amount of shares

are held by FIIs, closely followed by Trusts, individuals and family persons. FIIs and Trusts on a whole can be called as insiders but no individual person is eligible for this insider title.

Nestle India ltd

It is evident from the shareholding pattern that the marginal investor of Nestle India is the Foreign promoter group (61 %), so it can influence the shares market prices. Also no individual has more than 4% of share which is a good sign. Institutional Investor contain 19% of share which consists of insurance, pension fund etc. which means apart from promoter share rest of the share has been distributed in market equally i.e. no one is having major stake apart from the promoter.

C. The Firms and Society

Britannia Industries Ltd.
The Company believes in creating sustainable models of Corporate Social Responsibility and in 2006-07 fostered a unique partnership with GAIN (Global Alliance for Improved Nutrition) and the Naandi Foundation to supply iron-fortified Tiger biscuits as part of the mid-day meal program in schools. This was initiated in Andhra Pradesh and currently caters to 150,000 children in Hyderabad. The Company has been at the forefront of several initiatives in rural India, covering wide-spread school contact programs in several states reaching 20,000 schools and 3 million children. The program highlights the importance of nutrition and good food habits among children through interesting stories and games, which also evoke a competitive spirit and make children more confident about themselves. Mothers of these children and other important influencers like Aanganwadi didi etc are also educated about health and nutrition and their role in the sound development of children. This program has also strengthened Britannia's nutrition credentials. On the energy front the Company has reduced energy consumption through process innovations and derived significant benefits by optimizing baking processes and Using alternate energy sources like recycled waste gases. manufacturing New technology

initiatives are now under way to further improve the energy consumption in our

Colgate Palmolive Ltd.

CPIL has a good rep as a corporate citizen. Colgate-Palmolive (India) Ltd. undertakes its corporate social responsibility through a variety of effective programs. Since 1976, the company has been delivering free oral health education to children of rural and urban poor in partnership with Indian Dental Association (IDA). Colgate's community outreach efforts have touched the lives of millions of children, providing the information, insight and inspiration they need for a healthy life and a healthy smile. Its other initiatives include Support for Meljol and Make a Wish Foundation, association with Dominic Savio Summer Camp, Partnership with Pratham, etc.

Dabur India Ltd.

"What is that life worth which cannot give comfort to others?" - Thus said Dr. S K Burman, founder of Dabur. Dabur is committed to improving healthcare standards of the people in the area of its operation. The company set up Sundesh - a welfare organization financially and managerially supported by Dabur and Chunni Lal Medical Trust. The company through these organizations provides healthcare facilities to women and children, gives non-formal education to children and adults and trains people in vocations such as bee keeping, mushroom farming, tailoring etc. to provide them additional source of income. The company is also committed to maintain ecological balance, as it understands its responsibility towards Nature, which provides raw material for most of the products manufactured by the company. Dabur India Limited is working on developing sustainable cultivated source for herbal ingredients. This will help in reducing the strain on natural habitat of these herbs. Dabur has also set up the most modern tissue culture facility for micro propagation of medicinal herbs. The company is involved in reforestation in the Himalayan range, which would help in maintaining the green cover there. The company has set up a state-of-the-art green house for saplings of more than 40 endangered plant species to help in averting the extinction of these plant species. This contract cultivation activity provides additional source of income to farmers.

Godrej Consumer Products Ltd.

Godrej Group is one of the most respected corporate houses known for its philanthropy and initiation of labor reforms besides being recognized for its values of fair, transparent and ethical dealings. Each generation of the Godrej family has been deeply committed to worker welfare, human development and environmental matters. The Godrej garden township for workers in Mumbai is but one of several community initiatives that has won admiration at home and abroad. Every year the Pirojsha Godrej Foundation dedicates funds to promote education, housing, social causes, conservation, population management and relief in times of natural calamities. During the previous year, the Company supported and encouraged various social and environmental initiatives. Towards this, the Company has created 4 SC/ST entrepreneurs during the year to build business partnership. The companys

Malanpur plant has adopted a school at a nearby village Singwari and granted financial help by way of scholarships to the best performing child belonging to the SC/ST from the fifth to the eight standard. Presently the Company has more than 10% employees under SC/ST category from its total employee strength.

Glaxo Smithkline Consumer Healthcare Ltd.

This Company, in its endeavor to serve the community, continues to contribute in and around the areas where it operates. During the year, this Company won the prestigious Asian CSR 2006 Award, in the category of Improvement of Education, for its work on the Knowledge-based therapeutic recreation for Children / youth and HIV/AIDS programme in India. The programme was chosen out of a highly competitive field of 178 projects submitted by 98 companies across 14 countries in Asia and it acknowledged the companys leadership in raising awareness in girl children about their rights against trafficking and sensitizing them about hygiene and appropriate behaviours when dealing with People Living With AIDS (PLWA). During the year the Nabha site received The Best Environment Protection Initiative 2006 award from the Punjab Pollution Control Board. The site proactively launched Stop Dengue Campaign in the Nabha Town to improve sanitation and hygiene, in association with local NGOs, civil administration and health authorities and the community. As in previous years, the site organized regular animal welfare measures and subsidized vet medicines, supported several dairy farming initiatives like Veterinary camps, milking Competitions, sponsoring awareness camps etc. in the milk shed area. A multifaceted program has been launched in Sonepat for Health & Education for Women under which health camp has been organized and vocational training (stitching & embroidery) has been imparted to the rural womenfolk for empowering them. This endeavor is the stepping stone for many such initiatives in the villages around your factory in Sonepat. Rajahmundry site has, in the last two years, planted more than 2000 Bio-diesel saplings. The biodiesel accrued from these plants shall be used for the vehicles operated by the site

Hindustan Unilever Ltd.

HUL continues to involve itself in communities across the country, through charity and social investment around issues of education, nutrition hygiene and disaster relief and rehabilitation as also through commercial initiatives for economic

development of women in rural areas. Such involvement is in the form of finance, employee time and donations of products/services and equipment. In certain cases requiring radical responses to endemic issues, HUL and Unilever work together. To illustrate, one of the key agendas of the United Nations Millennium Development Goals (MDGs) was combating maternal health concerns and child mortality. With 40% of the worlds malnourished children being in India, a Partnership for Child Nutrition (PCN) was formed for this initiative. Unilevers became the first corporate house to join the PCN in the world's first multi-sectored approach to combat this issue in collaboration with UNICEF and Synergos Institute. In India, as part of this PCN, the Company is working with leading organisations like ICICI Bank, HDFC, TATA group of companies, UNICEF & Govt. of Maharashtra to work together as a multi sectoral alliance. This initiative, aptly christened the Bhavishya Alliance would jointly analyse the problem of child malnutrition, and design systemic solutions for implementation. While Unilever has made financial commitment to this alliance, the Company has seconded a team of managers to drive this initiative.

ITC Ltd.
ITC recently won the 'Corporate Social Responsibility Award 2004' from The Energy and Resources Institute (TERI) for its e-Choupal initiative. ITCs International Business Division, one of Indias largest exporters of agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. The eChoupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others. eChoupal also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability > low investment > low productivity > weak market orientation > low value addition > low margin > low risk taking ability. This made him and Indian agribusiness sector globally uncompetitive, despite rich & abundant natural resources. Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk management, larger investments and higher quality and productivity. Further, a growth in rural incomes will also unleash the latent demand for industrial goods so necessary for the

continued growth of the Indian economy. This will create another virtuous cycle propelling the economy into a higher growth trajectory. Appreciating the imperative of intermediaries in the Indian context, e-Choupal leverages Information Technology to virtually cluster all the value chain participants, delivering the same benefits as vertical integration does in mature agricultural economies like the USA. e-Choupal makes use of the physical transmission capabilities of current intermediaries aggregation, logistics, counter-party risk and bridge financing while disintermediating them from the chain of information flow and market signals.

Marico Industries Ltd.

Marico holds a very good reputation as a corporate citizen. As it was earlier a family run business and was producing a product that was used in every home, Marico gained the reputation of a socially responsible company. It understands the importance of giving back to society. It has its own way of fulfilling this responsibility. Marico has started Marico Innovation Foundation with a mission: to provide the nation with first: a belief that Innovation is possible and is the way to leapfrog India into the center stage of global business leadership, and second: a framework to leverage innovation for quantum growth. Marico Innovation Foundation has helped a lot of social organizations to find innovative solutions to various social problems existing in India and abroad. Few of its innovations have become case studies and are famous of the social impact of the result.

Nestle India Ltd.

Nestl India has always focused on long term, sustainable and profitable growth and helped communities around its factories to improve their quality of life in a similar manner. Nestl Agricultural Services has used the experience gained by Nestl across the world to set up a system of direct and efficient contact with the farmers. Company veterinarians and agronomists supervise the milk routes and advise farmers on various issues including proper feed for the herds. Milk storage facilities have been set up close to the farmers. Veterinary services are provided free, and medicines provided at wholesale cost. The company assists farmers in artificial

insemination programs for their cattle, provides subsidy and helps them in procuring loans. Safe Drinking Water: Water is a scarce resource. In India, availability of clean drinking water is a major concern for many communities. Almost 200 million people do not have access to clean drinking water. Nestl India is committed to improving the situation and believes that the first step is to create awareness in the communities around its factories. A key focus area of our Corporate initiatives is to help provide Clean Drinking Water and educate children in schools to conserve this scarce resource. Education and Training: Nestl supports initiatives to create awareness about the right to education and encourages the communities around its factories to send their children to school. Nestl India employees have developed a special play 'Let Us Go to School' for this purpose. This has been staged amongst the communities around our factories, and its recordings screened at smaller gatherings along the milk routes.

PART III: MARKET ANALYSIS OF RISK AND RETURN IN THE FMCG INDUSTRY
1) Calculating Top-Down Betas: For each company we ran a regression of the individual stocks monthly prices against the BSE 100 index for the period 2003 to 2007. The results of the regression on which we concentrated were the intercept, the slope (beta/risk), the R squared (to understand how much of the risk is diversifiable) and the standard error of the Beta (to assess the validity of the top down prediction). The results are highlighted in the following table. - value Britannia Dabur Nestle GSK Col-Pal HUL Marico ITC Godrej 4.341 4.466 3.882 4.404 4.185 -3.437 4.218 -0.474 4.776 - value 0.377 0.271 0.557 0.449 0.417 0.805 0.187 0.588 0.058 Se 6.05 5.98 5.64 5.88 5.94 7.23 5.86 13.45 6.68

Table 3.1 , , Se values for FMCG companies

2) Intercept: The intercept of the regression line in the CAPM is called the coefficient. is a risk adjusted measure of the excess return on an investment. For seven of the nine companies have positive values and two have negative values. 3) Slope: The slope of the regressions gave us the beta of the companies (their risk level). The figures reveal that the firms analyzed are below average risk (Beta = 1). 4) R2: The R2 values which are evidently low for the given companies indicates that the greatest part of the risk faced by the companies comes from firm specific sources (which is diversifiable). The R2 values for the companies i.e. the percentage of their risk that can be explained by the market factors is given below.

R2 (%) Britanni a Dabur Nestle GSK Col-Pal HUL Marico ITC Godrej 19.24 21.06 29.80 23.53 22.05 35.90 24.04 7.90 1.35

Table 3.2 R2 values for FMCG companies Estimating default risk and Cost of debt: To calculate the cost of debt of the firms we have taken the bond ratings of the companies and the associated spread and added the spread to the long term riskfree rate. The long term risk free rate is 7.89%. The credit ratings of the companies and the cost of debt are given in the table below. Risk free rate Britanni a Dabur Nestle GSK Col-Pal HUL Marico ITC Godrej 7.89 7.89 7.89 7.89 7.89 7.89 7.89 7.89 7.89 Interest Coverage Ratio 17.13 45.96 1243.75 67.08 222.30 217.00 10.29 268.43 21.69 Credit rating AAA AAA AAA AAA AAA AAA AA AAA AAA Defaul t spread 0.75 0.75 0.75 0.75 0.75 0.75 1.00 0.75 0.75 Cost of debt 8.64 8.64 8.64 8.64 8.64 8.64 8.89 8.64 8.64

Table 3.3 Cost of Debt Cost of Equity: The cost of equity is calculated using the Capital Asset Pricing Model (CAPM). The cost of equity is Rs= Risk-free rate + Beta (Risk premium)

The risk free rate is 7.89% as established earlier. The values of Beta have been calculated earlier. To calculate the market rate of return, we have taken the monthly returns of BSE FMCG index for the past five years and arrived at the annual average returns for the sector. The average annual return for the sector is 28.05%. The cost of equity for the companies is given in the table below. Marke t return s 28.05 28.05 28.05 28.05 28.05 28.05 28.05 28.05 28.05

Risk free rate Britanni a Dabur Nestle GSK Col-Pal HUL Marico ITC Godrej

Beta

Cost of Equity

7.89 7.89 7.89 7.89 7.89 7.89 7.89 7.89 7.89

0.377 0.271 0.557 0.449 0.417 0.805 0.187 0.588 0.058

15.497 13.349 19.116 16.952 16.304 24.126 11.663 19.744 9.069

Table 3.4 Cost of Equity Market value of equity: The market value of equity has been calculated by multiplying the number shares outstanding and the price of the stock at the end of the examined period. The table below shows the number of shares outstanding and the market value of equity for the companies. No. of outstanding shares 23890163 864022973 96415716 42055538 135992817 2177463355 609000000 3765838830 225844076 Stock Price(Rs) 1387 94 1325 592 377 196 63 185 111 Market Value of Equity (Rs Crores) 3313 8130 12773 2488 5126 42667 3828 69706 2508

Britannia Dabur Nestle GSK Col-Pal HUL Marico ITC Godrej

Table 3.5 Market Value of Equity

Estimating the Cost of Capital: The Weighted average cost of capital WACC is calculated by the formula WACC= Rs * Equity/(Debt+Equity) + Rb * (1-Tc) * Debt/(Debt+Equity) The cost of debt after tax, Rb * (1-Tc), is given in the following table. Tc is the marginal tax rate of the companies, the calculation of which is shown later. Cost of debt (Rb) Britannia Dabur Nestle GSK Col-Pal HUL Marico ITC Godrej 8.64 8.64 8.64 8.64 8.64 8.64 8.89 8.64 8.64 Marginal tax (Tc) 29.00 29.00 11.40 9.37 26.97 14.33 26.93 25.46 6.82 Cost of debt (After tax) 6.13 6.13 7.66 7.83 6.31 7.40 6.50 6.44 8.05

Table 3.6 After Tax cost of Debt The Weighted Average Cost of Capital (WACC) for the companies is shown in the following table. Cost of debt (After tax) 6.13 6.13 7.66 7.83 6.31 7.40 6.50 6.44 8.05

Market Value of Equity Britan nia Dabur Nestle GSK ColPal HUL Marico ITC Godrej

Cost of Equity

Book Value of Debt

WACC

3313.33 8130.46 12773.15 2487.59 5125.57 42667.39 3827.57 69705.68 2508.00

15.50 13.35 19.12 16.95 16.30 24.13 11.66 19.74 9.07

4.78 20.08 16.27 0.00 0.98 72.60 167.25 200.88 112.87

15.48 13.33 19.10 16.95 16.30 24.10 11.45 19.71 9.03

Table 3.7 WACC for FMCG companies

PART IV MEASURING INVESTMENT RETURNS

1. Accounting Returns on Project This section analyzes the quality of the firms current projects and the managers abilities to contribute to increasing the firms value. This section will also assess the companies future projects by considering what characteristics the investments have within the industry. Characteristics of the Project in the Industry Business units Time Horizon Predictabilit y External factors Curre ncy

New Brand Launch New Product Launch

Long Term Low Short Term Medium

Consumer behavior Consumer behavior

Local Local

Table 4.1 Characteristics of Projects in FMCG sector Launching a Brand in the FMCG is a high risk, high investment proposition. It requires extensive market survey and heavy expenditure on advertisement, which are mostly, sunk costs. Production facility or R & D have a relatively lower share in the project cost. New product launch enjoys lesser risk, as it is launched under existing brand itself. It also has significantly less advertisement expenditure. ROC and ROE Analysis The following section shows the value of the Return on Equity (ROE) and Return on capital (ROC) of the companies under Consideration. ROE = Net Income / Book value of equity. ROC = EBIT x (1- tax rate of 30%) /Book value of Firm Based upon two above formulas we have calculated ROE and ROC for 9 FMCG firms. To see the pattern of average return, historical return and to highlight the fact that whether company has taken high worth project recently, we have compared current

return, 3 average year return and 5 year average return both in ROE and ROC case. Calculation of both the factors is in the excel files. Depending on the calculations, to highlight the variations between different companies and within the companies to highlight their average return pattern we have drawn a Histogram. ROE Percentage

Figure 4.1 ROE Percentage

ROC Percentage

Figure 4.2 ROC Percentage

From the ROE and ROC chart we can deduce that Godrej is having a highest return .But there is dip from 140% return to 100% return (ROC) when u compared five year average return with current return similar dip is present in ROE chart also from which we can say that although Godrej is having a better project than other companies but currently it engages itself in a project which is earning them less return when `compared to historical projects. Other observations from graph is Britannia is having a Higher ROE than its previous year which states that company is taking highly profitable projects and increasing value for its stockholder. Companies Return on Equity 130.4036 354 27.64624 67 51.08820 657 61.37388 126 71.23044 29 71.72243 284 57.29090 781 85.51202 509 24.98845 583 Return on Capital 100.6453 789 32.38877 021 35.35190 137 77.33505 262 56.79885 982 23.45663 342 62.20113 266 100.4517 839 56.41077 404 Cost of Equity 15.497 13.349 19.116 16.952 16.304 24.126 11.663 19.744 9.069 Cost of Capital
14.43 13.23 18.19 16.95 16.26 23.90 10.68 19.39 8.71

Godrej ITC Marico HUL Colgate Palmolive Britannia Dabur Nestle GSK

Table 4.2 Comparison of ROE and ROC to COE and COC Comparing the Return on equity with the cost of equity in order to understand the kinds of projects taken by the company we come to conclusion that all the companies have been able to earn very high return on equity and capital. The companies present in the analysis had return on capital in excess of the cost of capital. This means that companies have undertaken good projects as seen from the firm. So the value of the firm will increase by undertaking such projects. Only Britannia had a return on capital less then the cost of capital, which means its current projects are not good for the company, but once the income from projects under implementation starts, itll augur well for the company.

The difference in return on equity and return on capital also depends on the capital structure changes; the company might have gone for a debt or floated equity. Although the accounting returns such as the ROE and ROC are good indicators of a companys ability to create value, they tend to look at the past performance rather than to future prospects. However, the companies are enjoying a trend of increasing ROEs and ROCs (as shown by the comparison of the latest years figure and the average of the last four years). Such trends lead us to believe that the companies are picking better and better projects, and are able to generate higher returns from their resources today than in the past five years. Accounting return is a fair measure of the returns that the company is making on the projects. However it does not take into account the opportunity cost of the capital used in the projects. To account the opportunity cost into the analysis we can use the Economic value Added analysis where the total economic value added to the equity shareholders and the firm through the new projects can be calculated. 2. Economic Value Added Both ROC and ROE is good method when it comes to quantify the returns on shareholders equity and total value of the firm (debt + equity).They are methods when we want to compare the company current return with past result. Moreover both these methods are use when we want to compare the company return with the other company and stock market. However these methods dont take into account the opportunity cost of capital. So its a financial performance method to calculate the true economic profit of corporation. EVA can be calculated as net operating after tax profit minus opportunity cost of capital. Equity EVA = NOPAT Cost of Equity*Equity Employed Unlike accounting profits method which we have discussed earlier EVA is economic and is based on the idea that business must cover its operating cost and opportunity cost which is missing in ROE and ROC. Equity EVA for 9 FMCG firms is calculated below: PBIT Marginal Tax NOPAT = PBIT(1-tax) Cost of Equity(%) Equity Employed Equity EVA

Godrej ITC Marico HUL Colgate Palmolive Britannia Dabur Nestle GSK

164.61 4,305. 66 205.98 2,328. 40 217.85 152.45 313.01 547.25 236.8

6.823081 72 25.45642 911 26.93202 385 14.33077 022 26.96712 133 9.37 11.4 29 29

153.3785252 3209.592714 150.5054173 1994.722346 159.1021262 138.165435 277.32686 388.5475 168.128

19.76 19.76 11.71 24.13 16.33 15.53 13.39 19.14 16.98

22.58 376.22 60.9 220.68 135.99 23.89 86.29 96.42 542.72

148.9167 17 3135.251 64 143.3740 27 1941.472 26 136.8949 59 134.4553 18 265.7726 29 370.0927 12 75.97414 4

Table 4.3 Calculated Equity EVA While in ROC and ROE methods we see that GODREJ is the company with highest return here we see that ITC which is having highest PBIT is having a highest EVA of 3135.So ITC has created maximum value for its shareholders while GSK has created least value for its shareholders. We see that all industry has created positive value for their shareholders. EVA for 9 FMCG firms: EVA = NOPAT WACC*Capital Employed PBIT Marginal Tax 6.823081 72 25.45642 911 26.93202 385 14.33077 022 26.96712 133 9.37 NOPAT = PBIT(1-tax) 153.3785252 3209.592714 150.5054173 1994.722346 159.1021262 138.165435 WACC Capital Employed 223.77 10,580.88 350.74 2,795.42 284.8 619.6 Equity EVA 121.0963 18 1810.263 49 86.71901 16 1520.856 35 112.7929 24 9.909387 8

Godrej ITC Marico HUL Colgate Palmolive Britannia

164.61 4,305. 66 205.98 2,328. 40 217.85 152.45

14.43 13.23 18.19 16.95 16.26 23.90

Dabur Nestle GSK

313.01 547.25 236.8

11.4 29 29

277.32686 388.5475 168.128

10.68 19.39 8.71

423.27 405.16 542.72

232.1310 08 309.9703 44 120.8718 58

Table 4.4 EVA for 9 FMCG firms From above table we can see that ITC which also having highest equity EVA is also having highest EVA. Also all companies except Britannia is having a negative EVA. So we are getting negative value for Britannia also ROC-WACC for Britannia is negative so at present Britannia is able to create value for its shareholder but still they are inefficient in their processes and in covering opportunity cost of capital, mainly debt. Britannia should take project keeping in view of opportunity cost of capital also it will increase its EVA.

PART V: CAPITAL STRUCTURE CHOICES

In this section we analyze the capital-structure of the firms as conceived of the debt and equity contributions. We study the various debt instruments and their contribution in the companys financial mix. We then analyze the companys interest payments vis--vis their earnings followed by an analysis of the benefits and disadvantages of debt. FMCG sector has traditionally been characterized by equity dominated capital structure. This is also validated by our analysis of the capital structure of the 9 FMCG companies. Being a sector under stable growth phase, there are no significant capital expansion plans. Hence these companies have the advantage of low levels of debt and a large cash-reserve. The table below computes the debt-equity ratios of various firms. Most of the firms have this ratio at around 4-5% with the exception of Godrej (63%) and Marico (85%).

Britan nia Share Capital Reserves Total Shareholde rs Fund Total Debt DebtEquity Ratio Long Term D/E Ratio 23.89 590.93

Colga te 135.9 9 144.5 3 280.5 2 4.28 0.02 0.02

Dabu r 86.29 316.9 403. 2 20.62 0.05 0.05

Glax o 42.06 500.6 6 542. 72 0 0 0

Godr ej 22.58 88.32 110. 9 112.8 7 0.63 0.53

HUL 220.68 2,502. 81 2,723. 49 72.6 0.03 0

ITC 376.22 10,060. 86 10,437. 08 200.88 0.02 0.02

Mari co 60.9 122.5 9 183. 5 167.2 5 0.85 0.43

Nestl e 96.42 292.4 7 388. 89 16.27 0.04 0

614.82

4.78 0.01 0.01

Table 5.1: Debt-equity ratios

Debt-Equity Ratio
Debt-Equity Ratio 100 80 60 40 20 0 Britannia C olgate D abur G laxo G odrej Company HL U IT C M arico N estle

Figure 5.1: Graphical representation of Debt-equity representation From 2003-05 Godrej has aggressively bought shares from the open-market by raising its debt levels. Company had said that it believes its shares are undervalued, hence the buy-back. We have analyzed the debt obligations of the companies as secured loans and unsecured loans.
Britann ia Term Loans Institutions Term Loans Banks Deferred Credit Cash Credit Working Capital Advances Total Secured Loans Loans from Banks Advances Deferred Tax Unsecured Loans Others TOTAL DEPOSITS Security Deposits Total Unsecured Loans Total Debt 0 0 1.53 0 0 1.53 Colga te 0 0 0 0 0 0 Dab ur 3.8 15.48 0 0 0 19.28 Glax o 0 0 0 0 0 0 Godr ej 0 33.34 0.48 9.05 5 47.87 HUL 0 0 0 0 37.1 3 37.1 3 34.3 1.17 0 0 0 0 35.4 7 72.6 ITC 0 0 0 60.78 0 60.78 Maric o 0 0 0 0 50.48 50.48 116.7 7 0 0 0 0 0 116.7 7 167.2 5 Nestl e 0 0 0 0 16.27 16.27

3.25 0 0 0 0 0 3.25

0 0 0 4.28 0 0 4.28

0.26 0 0 0 0.54 0.54 1.34

0 0 0 0 0 0 0

65 0 0 0 0 0 65 112.8 7

46.29 0 93.81 0 0 0 140.1 200.8 8

0 0 0 0 0 0 0

4.78

4.28

20.62

16.27

Table 5.2: Debt obligations of the companies Secured loans usually offer lower rates, higher borrowing limits and longer repayment terms than unsecured loans. Secured loans consist of mostly long term debt comprising of loans from institutions, banks, credit and working capital advances. Unsecured loans are loans for shorter term. Most of the companies have higher percentage of unsecured loans comprising of loans from banks. This implies that companies are paying higher interest rates under their unsecured contracts. Advantages of Taking Debt: The FMCG sector in India has historically been a stable sector with constant growth rate of 6-7% over the last decade. Also the prospects of the sector are promising with the rising disposable income of a vast majority of population. Hence adding on more debt can provide these firms with adequate leverage to increase the EPS. As previously calculated there is a wide variation in the marginal tax rate across firms. Companies with high marginal rate like Nestle and GSK (29%), ITC, Marico and Colgate (25-27%) will benefit more by raising its debt levels as compared to companies like Godrej (6%), Britannia (9%) and Dabur (12%). Also since most of the companies have adequate cash reserves and not much capital intensive projects the reduction in credit ratings of the firms, even if they increase their debt-equity ratios, will not affect the investment plans. The tax savings that firms accrue depends on the amount of depreciation each one has. In this regard Marico and Godrej have higher benefits due to higher depreciation as a ratio of their book value. expenses.
Britan nia Depreciation Firm Book value 25.27 614.82 Colg ate 15.2 280.5 Dab ur 21.9 8 403. 19 Glax o 42.71 542.7 2 Godr ej 12.4 9 110. 9 HUL 130.16 2,722. 82 ITC 362.92 10,380. 00 Mari co 35.19 183.4 9 Nest le 66.28 388.9

On the other hand,

Britannia, Colgate and Dabur benefit least by their low depreciation

Depreciation/B ook Value

4.1101 5

5.418 9

5.45 15

7.869 6

11.2 62

4.7803 4

3.4963 39

19.17 8

17.04 3

Table 5.3: Depreciation/ Firm book value for the companies Another factor to be considered is the current ability of the firm to service its interest obligations. We have analyzed the companies yearly interest payments as a ratio of its EBITDA (Interest Coverage Ratio). Higher this ratio is, better will be its interest-payment ability. The table below provides the interest-coverage ratio for various firms. We see that companies like Colgate, HUL and ITC have large interest coverage ratios, thereby signifying safer debt servicing. Nestle have substantially lower interest commitments both in absolute terms and as compared to its EBITDA. .Hence there is lower risk with these companies taking up more debt. Companies like Britannia and Marico pay a large part of their earnings as interest payments. Hence it provides a limit to their raising external borrowing.
Interest Coverage Ratios Britan nia Interest Paid EBITDA Interest Coverage 9.1 152.5 16.758 2 Colg ate 0.98 218 222.4 5 Dab ur 6.81 313 45.9 62 Glax o 3.5 237 67.7 14 Godr ej 7.6 164. 6 21.6 58 HUL 11 2328 .2 211. 65 ITC 16 4305 269. 06 Mari co 20 206 10.3 Nest le 0.44 547.4 1244. 1

Table 5.4: Interest Coverage ratios

Interest Coverage Ratios

1400 Interest Coverage 1200 1000 800 600 400 200 0
xo IT C at e UL ico M ar re j a r ab u nn i G la G od ol g es t N H le

ita

Br

Company

Figure 5.2: Graphical representation of Interest Coverage ratios

All the companies are publicly listed with a majority of shares with institutional investors and with general public. This implies that there is a wide separation between management and shareholders. Hence debt obligations will also help in disciplining the management.

Disadvantages of Taking Debt: The companies already have comfortable cash reserves signifying not much capital investment opportunities availed by the firm. Also, the recent upswing in the stock markets has given fair valuations to the company stock prices. Hence buy-back of shares at current prices at the cost of debt is not advisable. Higher debt obligations will negatively affect the companys cash flows thereby reducing the dividend amounts payable to shareholders High debt financing of riskier projects can give rise to bankruptcy effects. Although latent, such effects will have to be considered by the managers if they plan to take up more debt. Ability to Service Debt:

A Free Cash flow to the firm analysis will help us gauge the amount of cash that these firms have to service any debt under an emergency. The table below lists the figures for each firm as on Mar 2007:

Na e of the m C pa om ny
Table 5.5: Free Cash Flow/ Total Debt ratios When we compare the ratio FCF/Total debt, we get an idea of how healthy is the organization in terms of free cash flow for timely and risk free debt servicing as well as the ability to fund new projects. A look at the figures indicate that while market and Marico have a risky capital structure that may inhibit them from taking risks in terms of new projects and product launches. Going forward, GPCL has plans to issue leaders like ITC and HUL boast of healthy and balanced figures, firms like Godrej rights of Rs 3-4b, which would reduce the interest burden and provide cash for funding future acquisitions. On the other hand Marico has invested heavily in strategic global acquisitions as well as in its latest offering in the form of Kaya Skin Clinics which has already started bearing returns. Marico however needs to reduce its debt liability. Britannia has very low debt liability and a relatively high level of free cash flow. Sitting on top of such enormous free cash without utilizing it for funding new projects is not a very positive sign. Name of the Company Britannia Colgate Palmolive Dabur Glaxo Smith Kline EBITDA 152.45 217.85 313.01 236.8

Britannia Colgate Palm olive Dabur Glaxo S mith Kline

Firm Value 3272.595946 5186.286292 8582.547662 2463.403138 EBITDA/Firm Value 0.04658 0.04200 0.03647 0.09612

Godrej Hindustan Unilever ITC Marico Nestle

164.61 2,328.40 4,305.66 205.98 547.25

3062.393633 49424.8 72034.25568 3809.07 14466.09336

0.05375 0.04710 0.05977 0.05407 0.03782

Table 5.6: EBITDA/Firm value When we compare the EBITDA/Firm Value ratios for all the firms, we find that while most lie in a similar range Nestle has the highest value. This implies a healthy capital structure vis--vis earnings. To have an idea of the variability of the operating income of the firms in consideration, we calculate the variability i.e. Standard Deviation/Mean expressed as a percentage. Following table presents the data for the ten years:
Name of Compan y Nestle Marico HUL Colgate Britannia Dabur Glaxo Godrej ITC Mar07 418.55 266.95 1594.8 2 115.34 87.08 234.43 138.6 107.62 2141.1 9 Mar06 403.0 6 170.0 1 1967. 45 75.09 64.9 194.3 4 98.48 147.5 1929. 68 Mar05 365.1 8 46.78 1301. 6 175.5 4 196.1 5 206.9 9 129.1 3 89.75 1851. 2 Mar04 358.7 8 60.56 1476. 48 124.7 82.59 198.5 5 145.4 5 84.31 1893. 27 Mar03 335.4 5 61.43 1566. 77 118.9 1 76.76 128.9 3 152.2 8 70.74 1914. 04 Mar02 264.4 6 63.37 1307. 46 56.23 53.08 99.84 175.3 8 78.44 1769. 54 Mar01 249.2 1 54.64 1359. 22 132.3 8 24.98 113.6 8 103.1 5 -0.21 991.0 1 Mar00 242.41 44.33 1112.5 1 89.83 53.42 44.51 74.28 1078.4 1 Mar99 173.6 2 22.34 723.0 9 77.32 64.3 82.23 30.64 649.8 3 Mar98 103.1 9 41.63 859.3 5 54.81 7.24 38.08 54.04 751.7 4

Table 5.7: Variability Of Operating Income

The variability is as follows: Name of Compan y Mean Std Deviatio n Std Deviation\Me an (expressed

as %) Nestle Marico HUL Colgate Britannia Dabur Glaxo Godrej ITC 291.3 9 83.20 1326. 88 102.0 2 71.05 134.1 6 110.1 4 82.59 1496. 99 102.61 75.84 364.11 38.17 50.53 70.49 46.41 44.55 561.47 35.21 91.15 27.44 37.42 71.13 52.54 42.14 53.94 37.51

Table 5.8: Deviation of Operating Income We observe that a variability of more than 90% for Marico is not a good indicator. This is justifiable as Marico is currently in a growth and expansion mode. However, the management needs to curt such high variability as it denotes high riskiness in the operating income of the firm. Britannia is another firm with a high ratio. The ratios of healthy firms hover in the 30-50% range.

PART VI: OPTIMAL CAPITAL STRUCTURE

The objective of this section is to come up with the optimal financing mix for each firm. The optimal capital structure is the ideal debt to Equity ratio that a firm should maintain to maximize its value. Though cost of debt is mostly less than that of cost of Equity, but the debt carries a distress cost with itself and therefore above a certain level, the actual cost of debt to the firm increases by a huge value. Thus to ensure that the firm maximize its value, all the firms must have a ideal debt to Equity ratio. This was first done on a quantitative basis using the Minimization of Cost of Capital Approach. After the model determined the optimal financing mix, we built constraints to determine the costs of maintaining a determined credit rating classification. As the results of the quantitative analysis could be way off what is considered normal for the industry, we enriched our analysis by using a comparative analysis between the firms under analysis and the oil sector and with the total market as a whole. Current cost of capital and Financing Mix
Britannia Cost of Equity After-tax Cost of debt Cost of Capital MV Firm (crores Rs) Rating Value/share 15.49% 7.83% 15.48% 3273 AAA 1367.85 Col-Pal 16.30 % 6.31% 16.29 % 5186 AAA 381.05 Dabur 13.35 % 7.66% 13.34 % 8583 AAA 99.10 Godrej 9.06% 8.05% 9.02% 3062 AAA 130.60 GSK 16.94 % 6.13% 16.94 % 2463 AAA 585.75 HUL 24.12 % 7.40% 24.09 % 49425 AAA 226.65 ITC 19.74 % 6.44% 19.71 % 72034 AAA 190.75 Marico 11.66 % 6.31% 11.43 % 3882 AAA 61.00 Nestle 19.12 % 6.13% 19.10 % 14467 AAAs 1498.7 0

Table 6.1 Current cost of capital and Financing Mix Optimal Mix The cost of capital at different financing mixes:
Debt Ratio Britannia Col-Pal Dabur Godrej GSK HUL ITC Marico Nestle

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

15.48% 15.49% 16.37% 17.19% 19.78% 20.98% 22.18% 23.38% 24.58% 25.78%

16.29 % 15.98 % 16.36 % 17.74 % 19.59 % 20.79 % 21.99 % 23.19 % 30.92 % 32.92 %

13.34 % 13.34 % 14.37 % 16.45 % 17.65 % 18.85 % 20.05 % 26.88 % 28.88 % 30.88 %

9.02% 9.10% 9.58% 10.93 % 13.46 % 14.66 % 15.86 % 17.06 % 18.26 % 26.67 %

16.94 % 16.50 % 16.20 % 16.15 % 16.82 % 17.15 % 19.50 % 22.02 % 23.22 % 24.42 %

24.10 % 23.88 % 24.38 % 25.04 % 27.74 % 28.94 % 30.14 % 31.34 % 39.09 % 41.09 %

19.72 % 19.32 % 19.09 % 19.67 % 20.26 % 23.50 % 24.70 % 25.90 % 27.10 % 28.30 %

11.54 % 11.34 % 11.74 % 12.32 % 14.94 % 16.14 % 17.34 % 18.54 % 19.74 % 28.20 %

19.11 % 18.68 % 19.07 % 21.20 % 22.40 % 23.60 % 24.80 % 26.00 % 27.20 % 35.76 %

Table 6.2 Optimal Mix It can be clearly seen in the table above that there is no fixed industry wide ideal debt ratio. The ratio is more specific to the company that we are analyzing. But mostly it is evident that the optimal debt ratio for the companies is low (0-10%). Some of the factors that make a major impact on debt ratio are: 1. EBITDA of the company, as it ensures the cash flow that the company is going to face. 2. Interest expenses paid by the company on the long term debt. 3. Effective Tax rate that the company pays. 4. Current market value of the company 5. Beta of the company 6. Market value of the current debt and the Rating that the company enjoys Therefore the optimal ratios and value without constraints for each firm are:
Britannia Cost of Equity After-tax Cost of debt 15.49% 7.83% Col-Pal 16.97 % 7.00% Dabur 13.88 % 8.50% Godrej 9.06% 8.05% GSK 19.70 % 7.87% HUL 25.64 % 8.04% ITC 21.92 % 7.75% Marico 11.84 % 6.86% Nestle 20.00 % 6.81%

Cost of Capital MV Firm (crores Rs)1 MV Firm (crores Rs)2

15.48% 3273 3273

15.98 % 5288 5402

13.34 % 8583 8583

9.02% 3062 3062

16.15 % 2584 2718

23.88 % 49865 50134

19.09 % 74370 76329

11.34 % 3913 3993

18.68 % 14798 15086

1- Assuming no growth

2- Assuming perpetual growth (Assuming no growth)

Table 6.3 optimal ratios and value without constraints for each firm

Britannia Current Market Value Increased Market Value 1 Increase (decrease) in market value 1 Increased Market Value 1 Increase (decrease) in market value 1 3273 3273

Col-Pal 5186 5288

Dabur 8583 8583

Godrej 3062 3062

GSK 2463 2584

HUL 49425 49865

ITC 72034 74370

Marico 3882 3913

Nestle 14467 14798

101

121

440

2335

31

331

3273

5402

8583

3062

2718

50134

76329

3993

15086

216

255

709

4925

110

619

Table 6.4 optimal ratios and value without constraints for each firm (Assuming perpetual growth) Looking at the above table, it can be clearly seen that except for Britannia, Dabur and Godrej, all the other companies can increase their market value by changing their debt structure. However, GSK and ITC show the most promising increase in the market values. The current market values of Britannia, Dabur and Godrej are same as their ideal values because they are working on the optimal financing mix already. Effect of changing the debt ratio: As we keep on changing the debt ratio, what we have observed for all the companies is that the debt ratio kept on decreasing up to a certain value and then started increasing. This occurs because after that point

distress cost becomes very prominent, increasing the value of the capital for the company. It can be clearly seen that the maximum cost of debt for all the companies occur at 90% level of debt. It means no matter what the financial health of the company is, beyond a certain point distress cost overtakes all the other factors and become the most prominent factor. Effect on stock price at optimal debt ratio: As is shown in the table above, the value of the firm will increase with change in debt ratio, it can be clearly concluded that the stock price of the firm will also increase. One point of importance here is to what use the raised debt is being used, if it used to buy back some shares or invested in a project giving the same return as the overall firm the market value and the share price of the firm will surely increase. But if the raised capital is not used properly or is paid as dividends to the stock owners, the market value of the firm may fall also post dividend payment.
Britannia Current Value/share Value/share (at optimal) 1 Value/share (at optimal) 2 1367.85 1367.85 1367.85 Col-Pal 381.05 388.50 396.93 Dabur 99.10 99.10 99.10 Godrej 130.60 130.60 130.60 GSK 585.75 614.49 646.37 HUL 226.65 228.67 229.91 ITC 190.75 196.95 202.15 Marico 61.00 61.51 62.81 Nestle 1498.7 0 1533.0 7 1562.9 1

1- Assuming no growth

2- Assuming perpetual growth

Table 6.5 Effect on stock price at optimal debt ratio Constraints on the company After the issue of debt by the company, the rating of the company will fall down, and some cases a huge fall. In that case any further attempt to increase the debt may not be possible as the cost of issuing debt would be high. Below are the updated ratings of all the companies under analysis:
Debt Ratio 0% 10% 20% 30% Britannia AAA AAAA BB+ Col-Pal Dabur Godrej AAA A BBB A AGSK HUL ITC Marico Nestle

40% 50% 60% 70% 80% 90%

Table 6.6 Constraints on the rating Constraint on the rating: The current ratings for all companies are AAA. Here we see that for going towards the optimal financing mix, come companies have to sacrifice their investment rating. Ideally a company should at least remain in the investment grade. Here we see that all the companies have a rating equal to or better than BBB, with ITC at BBB and GSK at BB+. All others are A- and better. The changes in investment ratings do affect the stock prices of the company. But since there isnt a big degradation in the ratings, there would not be much effect of this on the stock prices. One major analysis to be noted is that since the cost of maintain the current investment rating is not too big (in terms of the difference in current and optimal market value), the decision is entirely in the companys hands whether it needs to give a priority to a higher investment rating, or an optimal financing mix. Sensitivity Analysis (The downside EBITDA): Since the calculations of the previous optimal ratios were based on the latest available EBITDA, the whole process of optimization could lead to biased results if this value (the EBITDA) was abnormally high or low. To make sure that the results of our process are robust, we repeated the optimization process but used a conservative level of EBITDA (EBITDA*). This EBITDA* was calculated for each company using the following formula: EBITDA* = EBITDA S(EBITDA) EBITDA where, EBITDA: is the latest available level of EBITDA S(EBITDA): is the standard deviation of EBITDA for the last 5 years.

The optimal ratios for each company get changed to:

Britannia EBITDA S(EBITDA) EBIT* Optimal Debt Ratio Optimal Debt ratio* 152.45 23.84% 116.102 3 0% 0% Col-Pal 217.85 11.14 % 193.58 10% 10% Dabur 313.01 24.01 % 237.87 10% 0% Godrej 164.61 22.00 % 128.39 0% 0% GSK 236.9 15.21 % 200.77 30% 30% HUL 2328.4 13.88 % 2005.3 0 10% 10% ITC 4305.6 6 18.40 % 3513.5 1 20% 20% Marico 205.98 26.78 % 150.81 10% 10% Nestle 547.25 13.20 % 475.04 10% 10%

Table 6.7 Sensitivity Analysis (The downside EBITDA): After comparing the optimal ratio (using EBITDA) with the optimal ratio using a normalized EBITDA, we conclude that the majority of the results are robust to changes in the level of EBITDA. Only Dabur and ITC experienced a impressive decrease in its optimal debt ratio with the inclusion of the normalized EBITDA.

PART VII: MECHANICS OF MOVING TO THE OPTIMAL

Path to the Optimal The following table provides information on how the firms should move towards their optimal debt ratios. The suggestions on how they should achieve their optimal ratios are also provided. Compa ny Britan nia Current Optimal Ratin Debt Debt g Ratio Ratio 0.15% 0.00% AAA How Should it move towards the optimal No new debt or arrangement of debt should be taken. It they want to take on projects they should use equity to finance them. Currently at good level of debt ratio. Should maintain this level. Currently at good level of debt ratio. Should maintain this level. They should use debt to expand and invest over the next 5 years. Currently at good level of debt ratio. Should maintain this level. Earning above its cost of capital recently, but is the firm finds good projects it should use debt to pay for them. They are currently at their optimal level and should try to stay there. Earning above its cost of capital recently, but is the firm finds good projects it should use debt to pay for them. No new debt or arrangement of debt should be taken. It they want to take on projects they should use equity to finance them.

Dabur Nestle GSK ColPal HUL

0.23% 0.11% 0.00% 0.08% 0.15%

10.00% AAA 10.00% A30.00% BB+ 10.00% A10.00% A

Marico ITC

4.31% 0.28%

10.00% A 20.00% BBB

Godrej

3.69%

0.00% AAA

Table 7.1 Path to the Optimal

None of the firms is in serious danger of a takeover due to the high value of the firms. As the large number of shares of Marico is held by family member, it also diverts the risk of takeover on this front also. GSK and ITC are the firms with lowest ratings, but due to large size, are in little risk of bankruptcy. Each of these firms (except Britannia and Godrej) can use debt to expand since they are all below their optimal debt ratios and they can maximize firm value by approaching the optimal debt ratios. Influence of Macro Economic Variables on Firm Value and Operating Income Here we assess the sensitivity of the firm value and operating income to various macro economic factors such as long term interest rates, real GDP growth rate, inflation and exchange rate, to understand how the firms should move towards their optimal debt target. Regression tests for all 9 companies were done to analyze the effect of these factors on firm value and operating income. Macro Variable Long Term Interest Rates Regression Coefficients for: (1) Firm Value (2) Operating Income Company/Results of Regression Implications for Financing

Britanni a Dabur Nestle GSK Col-Pal HUL Marico ITC Godrej Britanni a Dabur Nestle GSK

1 21.43 2.12 -2.71 2.91 22.42 2.28 -9.68 23.08 39.03 31.37 5.18 -1.98 -4.29

2 4.25 8.68 -8.72 10.85 Although some of the individual regressions show some signs of long term duration, on average the combined averages do not show signs of long term -7.67 duration. It appears as the firms 6.72 become stable, they should use 6.4 short-term duration debt. 6.01 -0.42 The firms with negative coefficients for income are negatively correlated to the GDP growth rate. Most of the firms have non-cyclic firm

Real GDP Growth (1) Firm Value (2) Operating Income

7.55 -9.52 0.97 -9.63

Col-Pal HUL Marico ITC Godrej Britanni a Dabur Nestle GSK Col-Pal HUL Marico ITC Godrej Britanni a Dabur Nestle GSK Col-Pal HUL Marico ITC Godrej

43.28 3.35 17.85 14.34 34.66 19.25 -3.51 -9.26 -7.28 27.82 -5.47 -8.96 12.57 16.95

-4.09 values. 5.23 18.93 0.47 -9.11

The

firm

values,

Inflation Rate (1) Firm Value (2) Operating Income

Every company's income (except Britannia and ITC) decreases with inflation. Increase is more for Britannia. Marico's income is most severely hit by rise in inflation. The firm value for all the firms -0.79 is decreasing with the inflation. -2.47 -14.2 9.5 -4.07 -1.65 -7.21 2.8 -5.6 The effect of the exchange rate does not seem to have a large effect on these firms therefore the majority of the debt should be issued in INR, but there is evidence to suggest that some of the debt should be issued in foreign currencies. This should be evaluated on a firm by firm basis.

Exchange Rate (1) Firm Value (2) Operating Income

-5.78 15.01 -2.65 -5.75 -5.34 -2.57 -8.96 11.98 -6.8

-7.64 2.6 -1.49 0.81 0.2 3.14 3.96 0.89 -0.11

Table 7.2 Influence of Macro Economic Variables on Firm Value and Operating Income Looking at the regression, a general sense of the types of the debt that these firms should use is evident. It appears that the firms should use medium to long duration debt, but as the firm becomes more stable, the duration should decrease. On average the firms do not appear to be cyclical, with the exception of Dabur and HUL. They do appear to be influence by fluctuations in the Exchange rate. The

majority of the debt should be issued in INR and does not need to be shielded from cyclicalities. The firms incomes seem to be effected by the inflation rate; thus, some of the debt should be issued with floating interest rates.

Part VII: Dividend Policy

The past dividend distribution data of companies chosen in the FMCG sector have been collected. From the data, it is observed that companies in general have an increasing trend of dividend payouts in absolute terms. In the span of 8 years, it is observed that Daburs dividend payout has increased by about 9 times whereas that of Colgate has increased by 3 times. The dividend payout percentage also has increased over time in line with the increase in absolute percentage of dividend payout. The dividend yield also has been on the rise. This shows that the dividend payouts have been in line with the movement of the scrip value in the market. The general trend shows that companies are not in favour of stock buybacks. The only exception to this trend is the buyback executed by GSK in the year 2004. Thus, the dividend policies of companies in the FMCG sector seem to be in unison largely in favour of dividend payouts than share buyback. Compa ny Britan nia Dividends (Rs. Crore) Stock Repurchase(Rs. Crore) 35.83 35.83 33.45 27.23 25.11 20.14 15.32 12.5310.01 0 0 0 0 0 0 0 0 0 2007 2006 2005 2004 2003 2002 2001 2000 1999

Cash to Stock Holders 35.83 35.83 33.45 27.23 25.11 20.14 15.32 12.5310.01 (Rs. Crore) Dividend Yield % Dividend Payout % Dabur Dividends (Rs. Crore) Stock Repurchase(Rs. Crore) 122.1 100.3 71.59 57.25 40.01 14.27 28.52 28.5114.25 3 2 0 0 0 0 0 0 0 0 0 1.2 150 0.84 150 1.58 140 1.76 110 2 100 1.39 75 0.8 55 0.73 0.56 45 55

Cash to Stock Holders 122.1 100.3 71.59 57.25 40.01 14.27 28.52 28.5114.25 (Rs. Crore) 3 2 Dividend Yield % Dividend Payout % Nestle Dividends (Rs. Crore) Stock Repurchase(Rs. Crore) 245.8 241.0 236.2 192.8 173.5 134.9 134.9 77.1362.67 6 4 2 3 5 8 8 0 0 0 0 0 0 0 0 0 1.84 175 3.03 250 6.76 250 7.63 11.7 200 140 2.7 50 4.93 36.6223.01 100 100 50

Cash to Stock Holders 245.8 241.0 236.2 192.8 173.5 134.9 134.9 77.1362.67 (Rs. Crore) 6 4 2 3 5 8 8 Dividend Yield % Dividend Payout % GSK Dividends (Rs. Crore) Stock Repurchase(Rs. Crore) 42.06 33.64 31.77 31.77 31.77 31.77 28.59 25.8722.69 0 0 0 123.0 3 0 0 0 0 0 2.24 255 2.67 250 4.19 245 2.9 200 3.44 2.71 180 140 2.55 1.86 1.42 140 80 65

Cash to Stock Holders 42.06 33.64 31.77 154.8 31.77 31.77 28.59 25.8722.69 (Rs. Crore) Dividend Yield % Dividend Payout % Col Pal Dividends (Rs. Crore) Stock Repurchase(Rs. Crore) 129.2 0 102 0 102 1.74 75 95.2 0 95.2 3.86 70 81.6 57.8 57.8 0 0 0 112.1 40.8 40.8 9 0 0 0 1.79 100 1.43 80 2.13 70 2.16 2.68 1.77 70 70 70 1.44 63 1.1 57 0.95 50

Cash to Stock Holders 129.2 (Rs. Crore) Dividend Yield % Dividend Payout % 2.86 95

81.6 57.8 57.8 4.61 60 3.5 3.02

112.1 40.8 40.8 9 5.34 2.07 1.67 82.5 30 30

42.5 42.5

HUL Dividends (Rs. Crore) Stock Repurchase(Rs. Crore) 1976. 1325. 1100. 1100. 1599. 1210. 1100. 770.2 638.1 12 48 62 62 2 69 62 1 8 0 0 0 0 0 0 0 0 0

Cash to Stock Holders 1976. 1325. 1100. 1100. 1599. 1210. 1100. 770.2 638.1 (Rs. Crore) 12 48 62 62 2 69 62 1 8 Dividend Yield % Dividend Payout % Marico Dividends (Rs. Crore) Stock Repurchase(Rs. Crore) 39.06 35.96 31.03 24.65 13.78 20.3 0 0 0 0 0 0 14.5 13.0513.04 0 0 0 4.21 900 2.77 600 2.53 500 3.48 2.69 3.03 500 550 550 2.24 500 1.7 12.89 350 290

Cash to Stock Holders 39.06 35.96 31.03 24.65 13.78 20.3 (Rs. Crore) Dividend Yield % Dividend Payout % ITC Dividends (Rs. Crore) Stock Repurchase(Rs. Crore) 1.07 11.49 22.02 64.89 74.02 65.5 62 53.5 85 55

14.5 13.0513.04

210.5 170.0 144 48.81 3 7 140 100 90 90

1166. 995.1 773.2 495.3 371.2 334.1 245.4 184.0 134.9 29 2 5 6 7 4 2 6 8 0 0 0 0 0 0 0 0 0

Cash to Stock Holders 1166. 995.1 773.2 495.3 371.2 334.1 245.4 184.0 134.9 (Rs. Crore) 29 2 5 6 7 4 2 6 8 Dividend Yield % Dividend Payout % Godrej Dividends (Rs. Crore) Stock Repurchase(Rs. 84.69 79.04 67.93 51.32 46.36 32.47 0 0 0 0 0 0 0 0 2.06 310 1.36 265 34.6 28.81 35.74 29.06 18.42 15.31 8.57 310 200 150 135 100 75 55

Crore) Cash to Stock Holders 84.69 79.04 67.93 51.32 46.36 32.47 (Rs. Crore) Dividend Yield % Dividend Payout % 2.58 375 7.81 15.67 22.27 31.04 34.94 350 300 225 200 137 0 0 0 0 0 0 0 0 0

Table 8.1 Dividend Payout details

Part IX: Dividend Policy - Framework

The purpose of this section is how much is company is returning to its shareholder in terms of dividend and compares it to with sector average value. We will see whether company is exhausting all its cash to pay dividend or how much it is retaining its cash to invest in new project. And in case if its retaining its cash we will see that whether company manager is investing in good project by looking at the past data (ROC, ROE). 1. Affordable dividend and actual dividend payout To see how much company could have paid to its stockholder we have calculated FCFE for every company and compared it with the returns stockholders have got in terms of dividend and stock buyback. To calculate the FCFE for each company, we took into account the average debt ratio of each firm. Compan y HUL Nestle Marico ITC GSK Godrej Dabur Col-Pal Britanni a Averag e FCFE 3176.41 461.12 889.88 6264.22 197.90 400.67 253.58 245.28 213.81 Average Dividends Payout 610.00 226.00 64.20 247.00 78.00 290.00 203.00 68.50 130.00 Cash to Stock Holders 1420.41 217.90 28.90 760.26 58.81 65.87 78.26 93.16 31.49

Table 9.1 Average FCFE and Dividend Payout

Cash to stockholder as percentage of FCFE

Table 9.1 Average FCFE50 Dividend Payout and 45 40 35 30 25 20 15 10 5 0

Div idend/ FCFE

Fig 9.1 Cash to stockholder as percentage of FCFE From above graph we can infer that all 9 of the FMCG companies is paying dividend within their capacity that is they are not going for excessive dividend payout by taking debt or by liquidating the assets. Nestle is having highest dividend: FCFE ratio which means that among the firms we have chosen, nestle is paying more dividend than any other company. How correct is this decision to not to pay whole cash to its stockholder we have to look into the projects which these companies is undertaking whether they will generate high return on equity with respect to cost of equity and can create Economic value to its shareholder. For getting into more detail we will look into next section. 2. Management Trust and Changing Dividend Policy Company ROE( %)
130.40 27.65 51.09 61.37

COE(% )
15.50 13.35 19.12 16.95

IT C G SK G od re j Da b Co ur lBr P al ita nn ia
Differenc e
114.91 14.30 31.97 44.42

L Ne st l M e ar ic o

HU

ROC (%)
100.6 5 32.39 35.35 77.34

WACC (%)
14.43 13.23 18.19 16.95

Differenc e
86.22 19.16 17.16 60.39

Godrej ITC Marico HUL

Colgate Palmolive Britannia Dabur Nestle GSK

71.23 71.72 57.29 85.51 24.99

16.30 24.13 11.66 19.74 9.07

54.93 47.60 45.63 65.77 15.92

56.80 23.46 62.20 100.4 5 56.41

16.26 23.90 10.68 19.39 8.71

40.54 -0.44 51.52 81.06 47.70

Table 9.2 Comparison between ROE, COE and ROC, WACC To calculate the excess return of the projects to the firm and equity investors, we used the Average ROE and ROC over the last five years then we calculated the difference between ROE and COE, ROC and WACC, we are using difference value to predict the nature of investment company is doing in the projects and whether investor should remain satisfy if they are getting less dividend. By looking into above table we see that all these companies is creating a positive value to its stockholder. Godrej is one company which is having creating highest value to its stockholder this data can also be cross checked by EVA in B4.All these companies is doing well by keeping some cash for investment in business as they are creating positive higher returns for its stockholder. However Nestle which is having a highest cash : FCFE ratio creating value by taking very good project from the perspective of return on project and cost of equity .so Nestle should reconsider its dividend policy to reduce some dividend and invest more in the business. On the other hand Britannia ROC is less than WACC so it should revised its divided policy as it is not able to create positive value for its stakeholder which will push the investor away from the firm than the only way to retain them reconsider its dividend policy and increase dividend payout. 3. Dividend Comparison with sector Dividen d Yield 3.14 3.09 Dividen d Yield Sector 10.04 10.04 Differenc e -6.90 -6.95 Payout ratio 610.00 226.00 Payou t Ratio sector 212.97 212.97 Differen ce 397.03 13.03

Company HUL Nestle

Marico ITC GSK Godrej Dabur Col-Pal Britannia

34.70 20.51 2.04 15.87 6.19 3.31 1.48

10.04 10.04 10.04 10.04 10.04 10.04 10.04

24.66 10.48 -8.00 5.84 -3.84 -6.72 -8.56

64.20 247.00 78.00 290.00 203.00 68.50 130.00

212.97 212.97 212.97 212.97 212.97 212.97 212.97

-148.77 34.03 -134.97 77.03 -9.97 -144.47 -82.97

Table 9.3 Dividend Comparison with sector The dividend yield and payout ratios for the sector were calculated taking average of individual dividend yield and payouts. These values suggest some firms dividend yields and payout ratios are high relative to the sector, with Marico paying more dividends relative to its earnings (34%). Godrej's payout ratio reaches 290%, this is above the sector average 212.96%. Regarding the dividend yield, ITC is paying the most to its stockholders (given the high amount of dividends paid when compared to its current stock price of Rs 206).

Part X: Valuation
In this section we present the valuation of the firms based on various parameters that we have calculated in the previous calculations. The various steps that we have followed to carry out the valuations are: 1) Finding the right valuation technique 2) Assuming the appropriate growth rates to be used 3) Calculating the discounting rate (calculated previously) 4) Comparing with the current market price of the security to determine if it is overvalued or undervalued

Historic Growth Rates:

Historic Growth Rates Britannia CAGR 12.62 Colgate 5.08 Dabur 15.5 Glaxo 10.15 Godrej 13.2 HUL 8.84 ITC 17.25 Marico 18.14 Nestle 13.67

Table 10.1: CAGR of the companies Most of these firms have been clocking a CAGR in the range of 10-15% during the past 10 years. Analysts predict an overall growth rate of around 10-12% in the FMCG sector upto 2015. Most of the firms are expected to echo a similar market trend. Traditionally FMCG industry has been a competitive one with many large players already present in the market. These companies enjoy substantial economies of scale and brand preference among consumers to limit the threat of new players. But already high competition in this domain itself will restrict the growth rate of all these companies Discounted cash-flow We had the option of using FCFE, FCFF or DDM for evaluating the cash flows. As we found out in the previous sections that firms in the FMCG sector operate with lower amounts of debt approx (5-7%) or even lower. Hence we do not foresee much

change in the operating structure of the firm. Therefore for all these forms we have used FCFE basis for valuing the PV of the future cash-flows. Assumptions taken: Two stage growth model Terminal value of 7% growth: Aligning it with medium run growth target of Indias GDP which is slated to grow at 6-7% for the next 10 years and adding a 1% premium for FMCG sector as we believe this sector has long term growth potential due to burgeoning middle class. Cost-of-equity as calculated in B3 earlier.

The expected growth in EBITDA is the basis on which we estimated the companies growth potential. Cash flows have been calculated as: FCFE = Net income - Capital Expenditure + Depreciation - Change in Working Capital Comparative Market Valuation We also used comparative valuation techniques such as P/E multiple, P/Book Value ratio and Price/ cash EPS. We have taken the average of previous 10 years for each of these ratios.

Valuation Results
The following table gives the price per share of the companies calculated using various methods. FCFE is used to calculate the price by discounted cash flow model. The P/E ratio, P/BV ratio and P/CEPS ratio are used to arrive at the price using Market Multiples.
Valuations Britannia Dabur Nestle FCFE 515 48 345 P/E 861 73 790 P/BV 1352 63 860 P/CEPS 982 81 955 CMP 1312 104 1470

GSK Colgate Palmolive HUL Marico ITC Godrej

382 66 86 37 85 130

565 294 223 39 135 122

486 283 138 31 151 172

550 291 220 47 149 135

608 387 235 65 200 126

Table 10.2: Comparison with DCF and Market multiple valuations with market price of stock The above valuations are depicted in the following chart.
1600 1400 1200 Stock Price 1000 800 600 400 200 0
N es tle L G SK ar ic o IT C ni a ur al m ol iv e D ab HU an M od re j

FCFE P/E P/BV P/CEPS CMP

Br it

Figure 10.1: Graphical Comparison of firm valuation using DCF and market multiples method with CMP In almost all the companies the Current market price is greater than the price arrived at through different valuation techniques. Only in the case of Britannia and Godrej is the price arrived through P/BV method is greater than the current market price. From the above valuations and chart we can conclude that almost all of the

C ol ga

te

above companies are trading at a premium to their valuations. Marico, Dabur and Godrej have close valuations through all the methods. We find that the current stock prices of almost all the companies tally closely with their historic P/E values, signifying an almost constant market valuation accorded to these companies by investors. The FCFE method, in almost all the companies, gives a lower value to the firms. We believe one reason for this can be comparatively high cost of equities associated with all these firms. We have taken the present cost of equity to discount the terminal value flows as well in absence of any major indicator for long term cost of equity.

Sensitivity Analysis
Sensitivity Analysis g= 5% No of shares outstandi ng 23890163 864022973 96415716 376583883 0 225844076 609000000 135992817 Price of share 434.27 92 38.313 07 312.94 11 73.735 63 130.24 86 27.527 63 58.128 57 g= 6% Price of share 470.25 21 42.310 53 327.92 43 78.391 81 163.93 08 31.635 61 61.528 69 g= 7% Price of share 514.69 3 47.567 23 345.38 08 84.113 48 229.69 13 37.506 68 65.660 01 Curre nt Mark et Price 1307. 6 107.6 5 1493. 1 206.3 126.4 67.4 387.6

Compa ny

DCF Values

DCF Values

DCF Values

Britanni a Dabur Nestle ITC Godrej Marico Colgate

1037.5 3310.337 64 3017.244 49 27767.64 88 2941.588 24 1676.432 57 790.5067 66

1123.44 3655.727 17 3161.706 06 29521.09 2 3702.280 92 1926.608 84 836.7459 35

1229.61 4109.917 93 3330.014 04 31675.78 07 5187.442 81 2284.156 9 892.9290 11

Glaxo HUL

42055538 217746335 5

1434.669 51 16265.97 32

341.13 69 74.701 48

1511.464 71 17344.58 3

359.39 73 79.654 99

1603.618 94 18692.84 53

381.30 98 85.846 89

606.1 5 242.2

Table 10.3: Sensitivity analysis of FCFE valuation using different growth rates As seen from the table shown above, Discounted Cash Flow value using Free Cash Flow to Equity was calculated for every firm using different growth rates, namely 5%, 6% and 7%. Then, using this value and the number of shares outstanding, we calculated the price value of share. It was observed that, for all the firms, the share price varied from 4% to 10% for every incremental change of growth rate from 5% to 7%. But Godrej, Dabur and Marico were exceptions in this regard. Especially, in case of Godrej, the variations were 20.73% and 41% for the incremental change from 5% to 6% and 6% to 7% respectively, which is considerably higher than the industry average. Thus Godrej share price, in particular, is very sensitive to growth rate changes One of the reasons for such high sensitivity is that the cost of equity for Godrej was amongst the lowest in the industry. As a result, the terminal value of FCFF saw significant variations with every percentage change in growth rate. When compared with the current market price of the shares, we can see that, with the exception of Godrej, all other stocks are overpriced, hence overvalued.

Operating & Financial Leverage Comparison: Britannia:

1400.00% 1200.00% 1000.00% 800.00% 600.00% 400.00% 200.00% 0.00% -200.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 C hange in Sales C hange in EBIT Operating leverage

250.00% 200.00% 150.00% 100.00% 50.00% 0.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 -50.00% -100.00% Change in EBIT Change in EPS Financial leverage

Colgate:
2000.00%
500.00%

1500.00% 1000.00% C hange in Sales 500.00% 0.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 -500.00% -1000.00%
-1500.00% 0.00% 1999 2000 20012002 2003 20042005 2006 2007 -500.00% Change in EBIT Change in EPS -1000.00% Financial leverage

C hange in EBIT Operating leverage

-2000.00%

Godrej:
300.00000% 250.00000% 200.00000% 150.00000% 100.00000% 50.00000% Change in Sales Change in EBIT Operating leverage

600.00000% 400.00000% 200.00000% 0.00000% -200.00000% -400.00000% -600.00000% 2002 2003 2004 2005 2006 2007 Change in EBIT Change in EPS Financial leverage

0.00000% 2002 2003 2004 2005 2006 2007

-800.00000%

ITC:
700.00% 600.00% 500.00% 400.00% 300.00% 200.00% 100.00% 0.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 Change in Sales Change in EBIT Operating leverage

400.00% 200.00% 0.00% -200.00% 19992000 20012002 200320042005 2006 2007 -400.00% -600.00% -800.00% -1000.00% -1200.00% -1400.00% -1600.00% Change in EBIT Change in EPS Financial leverage

Marico
1400.00% 1200.00% 1000.00% 800.00% 600.00% 400.00% 200.00% 0.00% -200.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 C hange in Sales C hange in EBIT Operating leverage

300.00% 200.00% 100.00% 0.00% -100.00% -200.00% -300.00% -400.00% -500.00% -600.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 Change in EBIT Change in EPS Financial leverage

Dabur:
5000.00% 4000.00% 3000.00% Change in Sales 2000.00% 1000.00% 0.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 -1000.00% Change in EBIT Operating leverage

3000.00% 2500.00% 2000.00% 1500.00% 1000.00% 500.00% 0.00% -500.00% 19992000 20012002 2003 2004 2005 20062007 -1000.00% -1500.00% -2000.00% Change in EBIT Change in EPS Financial leverage

Glaxo:
300.00% 200.00% 100.00% C hange in Sales 0.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 -100.00% -200.00% -300.00% C hange in EBIT Operating leverage

250.00% 200.00% 150.00% 100.00% 50.00% 0.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 -50.00% -100.00% Change in EBIT Change in EPS Financial leverage

HUL:
1600.00% 1400.00% 1200.00% 1000.00% 800.00% 600.00% 400.00% 200.00% 0.00% -200.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 -400.00% Change in Sales Change in EBIT Operating leverage

1500.00% 1000.00% 500.00% 0.00% -500.00% -1000.00% -1500.00% -2000.00% -2500.00% 19992000 20012002 2003200420052006 2007 Change in EBIT Change in EPS Financial leverage

Nestle:
400.00% 300.00% 200.00% 100.00% 0.00% -100.00% -200.00% -300.00% -400.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 Change in Sales Change in EBIT Operating leverage

350.00% 300.00% 250.00% 200.00% 150.00% 100.00% 50.00% 0.00% -50.00% 1999 2000 2001 2002 2003 2004 2005 2006 2007 Change in EBIT Change in EPS Financial leverage

Figure 10.2 Operating & Financial Leverage Comparison High fixed costs and low variable costs provide the operating leverage of a greater percentage change in profits both upward and downward. We can see that the operating leverage of Godrej during the period 2003-05 went up owing to investment in fixed assets.

The change in Sales of Godrej was positive during this period hence the high operating leverage paid off. Operating leverage of Dabur was very high during 2002. Since change in Sales or EBIT has not been substantial, the operating leverage for most of the firms above are in reasonable limits. Financial leverage affects the debt-equity mix and determines how the benefits received will be allocated for most of the firms above it reflect a capital structure with fair amount of risk. Due to low EBIT, the financial leverage of Dabur in 2004 is very high which reflects a risky situation.

Appendix
Britannia Industries Limited
Share Holding pattern
% Ownership Pattern as on 31-12-2007 Foreign (Promoter & Group) Indian (Promoter & Group) Total of Promoter Non Promoter (Institution) Non Promoter (NonInstitution) Total Non Promoter Total Promoter & Non Promoter Custodians(Against Depository Receipts) Grand Total No of Shares 121732 19 750 121739 69 709167 4 462452 0 117161 94 238901 63 0 238901 63 Share Holdin g 50.95 49 0.003 1 50.95 8 29.68 45 19.35 74 49.04 19 99.99 99 0 100 6 2 8 82 24822 24904 24912 0 24912 139231 9 450 139276 9 707568 3 318288 7 102585 70 116513 39 0 116513 39 Share Holder Demat Share

Category of shareholder

No. of Total sharehol no. of ders shares

Total no. of shares held in dematerial ized form

Total shareholding as a % of total no. of shares As a % of (A+B) As a % of (A+B+C)

(A) Shareholding of Promoter and Promoter Group (1) Indian Individuals / Hindu Undivided Family Bodies Corporate

1 1

450 300

450 -

Sub Total (2) Foreign Bodies Corporate Sub Total Total shareholding of Promoter and Promoter Group (A) (B) Public Shareholding (1) Institutions Mutual Funds / UTI Financial Institutions / Banks Insurance Companies Foreign Institutional Investors Sub Total (2) NonInstitutions Bodies Corporate Individuals Individual shareholders holding nominal share capital up to Rs. 1 lakh Individual shareholders holding nominal share capital in excess of Rs. 1 lakh Any Others (Specify) Trusts Sub Total

750 121732 19 121732 19 121739 69

450

6 6

1392319 1392319

50.95 50.95

50.95 50.95

1392769

50.96

50.96

25 21 10 26 82

168143 5 15619 264189 2 275272 8 709167 4

1680505 13395 2629055 2752728 7075683

7.04 0.07 11.06 11.52 29.68

7.04 0.07 11.06 11.52 29.68

548

251390

227794

1.05

1.05

24227

348219 8

2422823

14.58

14.58

38

881188

522526

3.69

3.69

9 24822

9744 462452 0

9744 3182887

0.04 19.36

0.04 19.36

Total Public shareholding (B) Total (A)+(B) (C) Shares held by Custodians and against which Depository Receipts have been issued Total (A)+(B)+ (C)

24904 24912

117161 94 238901 63

10258570 11651339

49.04 100

49.04 100

24912

238901 63

11651339

100

Fund Holding Pattern Mkt Fund Value Jan08 Birla Sun Life Mutual Fund Franklin Fund HDFC Mutual Fund Kotak Mahindra Mutual Fund UTI Mutual Fund 228.9 3 1.99 8.28 222.3 3 2.02 8.44 -0.03 -0.16 -1.49 -1.9 13723 57268 13723 57268 6.6 2.97 1582678 1508898 Templeton Mutual 0.12 0.12 Mkt Value Dec07 5.35 6.39 Chang e in Value -5.23 -6.27 % Chang e -97.76 -98.12 No of Shares Jan-08 798 798 No of Shares Dec-07 36279 43337

Colgate Palmolive Ltd.

Shareholding Pattern
No. of share holders Total no. of shares Total no. of shares held in demateriali zed form

Category of shareholder

Percent age

A) Shareholding of Promoter and Promoter Group (1) Indian (2) Foreign Bodies Corporate Sub Total Total shareholding of Promoter and Promoter Group (A) B) Public Shareholding 3 3 6935633 6 6935633 6 51 51

6935633 6

51

(1) Institutions Mutual Funds / UTI Financial Institutions / Banks Insurance Companies Foreign Institutional Investors Sub Total (2) Non-Institutions Bodies Corporate Individuals Individual shareholders holding nominal share capital up to Rs. 1 lakh Individual shareholders holding nominal share capital in excess of Rs. 1 lakh Non Resident Indians 1621 4763374 4737322 3.5 47 108 7 67 229 6787682 345880 1030843 0 1108606 6 2852805 8 6782265 337713 10308430 11082616 28511024 4.99 0.25 7.58 8.15 20.98

133315

3237770 7

23931795

23.81

610101

610101

0.45

832

349045

326196

0.26

Overseas Corporate Bodies Trusts Sub Total Total Public shareholding

2 11 135783

3220 4976 3810842 3 6663648 1

1940 4976 29612330 28.02

136012

58123354

49

Stock holder analysis:

Ownership Pattern as on 31-12-2007 Bajaj Allianz Life Insurance Company Ltd Colgate Palmolive Asia Pte Ltd Colgate Palmolive Company USA Government of Singapore HDFC Trustee Company Ltd LIC of India Norwood International No of Shares % Share Holding 1416964 14879426 54476347 1561000 1400000 8265538 563 1.04 10.94 40.06 1.15 1.03 6.08 0.00

Dabur India Ltd.

Share holding pattern
Total no. of shares held in demateri alized form Total shareholding as a % of total no. of shares As a % of (A+B) (A) Shareholding of Promoter and Promoter Group (1) Indian Individuals / Hindu Undivided Family Bodies Corporate Sub Total 15 11 26 978000 610574473 611552473 969000 61056697 3 61153597 3 0.11 70.67 70.78 0.11 70.67 70.78 As a % of (A+B+C )

Category of shareholder

No. of shareholders

Total no. of shares

(2) Foreign Individuals (Non-Residents Individuals / Foreign Individuals) Sub Total Total shareholding of Promoter and Promoter Group (A) (B) Public Shareholding (1) Institutions Mutual Funds / UTI Financial Institutions / Banks Insurance Companies Foreign Institutional Investors Sub Total (2) Non-Institutions Bodies Corporate Individuals Individual shareholders holding nominal share capital up to Rs. 1 lakh Individual shareholders holding nominal share capital in excess of Rs. 1 lakh Any Others (Specify) Non Resident Indians Sub Total Total Public shareholding (B) Total (A)+(B) (C) Shares held by Custodians and against which Depository Receipts have been issued Total (A)+(B)+(C)

4 4 30

282000 282000 611834473

276000 276000 61181197 3

0.03 0.03 70.81

0.03 0.03 70.81

22 8 13 86 129

12755295 195959 55817035 114761761 183530050

12749295 195959 55817035 11475876 1 18352105 0 9965321

1.48 0.02 6.46 13.28 21.24

1.48 0.02 6.46 13.28 21.24

1742

9982322

1.16

1.16

100223 19 2723 104707 104836 104866 104866

47930472 6263732 4481924 68658450 252188500 864022973 864022973

41766329 6263732 2104924 60100306 24362135 6 85543332 9 85543332 9

5.55 0.72 0.52 7.95 29.19 100 -

5.55 0.72 0.52 7.95 29.19 100 100

Shareholding pattern based on ownership

Promoters Shareholding Pattern

Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Name of the shareholder Gauri Tondon Ashok Chand Burman Pradip Burman Sudha Burman Chetan Burman Vivek Chand Burman Aditya Burman Pradip Burman HUF GC Burman HUF Asha Burman AC Burman HUF Indira Burman Indira Burman Naresh Talwar Umesh Talwar Chowdhry Associates Gyan Enterprises Pvt. Ltd Gyan Enterprises Pvt. Ltd VIC Enterprises Pvt. Ltd Acee Enterprises Puran Associates Pvt Ltd Ratna Commercial Ent.Pvt Ltd Ratna Commercial Ent.Pvt Ltd Sahiwal Investment and Trading Company Milky Investment & Trading Company Upvan Farms & Services Pvt. Ltd. Sidharth Burman Anand Burman No. of shares 339000 201000 244000 18000 15000 15000 15000 15000 15000 77000 15000 3000 3000 2010 990 115175020 98241490 5977500 108867000 106025970 94606000 64222993 17436000 7500 7500 7500 6000 111000 Shares as a % of total number of shares 0.04 0.02 0.03 0 0 0 0 0 0 0.01 0 0 0 0 0 13.33 11.37 0.69 12.6 12.27 10.95 7.43 2.02 0 0 0 0 0.01

29 30

Minnie B urman Sidharth Burman Total

15000 150000 611834473

0 0.02 70.81

Fund Holder analysis

Mkt Mkt No of No of Change Valu Valu Chang % Shares Shares in % e e e in Change Dec Nov No of Change Dec Nov Value 2007 2007 Shares 2007 2007 5.57 -5.57 504026 -504026 2.70 3.05 -14.69 3.06 -99.56 -99.70 -5.88 14.46 100000 100000 0 0.00 251539 25153960 0.00 6 290000 351113 -61113 -17.41 206497 207312 -815 -0.39 1042 207312 -206270 -99.50 1042 300000 -298958 -99.65 42171 46235 -4064 -8.79 200242 1802425200000 11.10 5

Fund

Birla Sun Life Mutual Fund Franklin Templeton Mutual 1.14 1.11 0.03 Fund HDFC Mutual Fund 28.73 27.88 0.85 ICICI Prudential Mutual Fund 3.31 Principal PNB Mutual Fund 2.36 Standard Chartered Mutual 0.01 Fund Tata Mutual Fund 0.01 Taurus Mutual Fund 0.48 UTI Mutual Fund

3.88 -0.57 2.29 0.07 2.29 -2.28 3.32 -3.31 0.51 -0.03

22.87 19.98 2.89

Statement showing Shareholding of persons belonging to the category "Public" and holding more than 1% of the total number of shares: Sr. Name of the shareholder No. 1 Matthews Pacific Tiger Fund 2 Matthews India Fund 3 LIC of India Money Plus 4 DWS Invest DWS Invest Bric Plus 5 ICICI Prudential Life Insurance Company Ltd 6 Life Insurance Corporation of India Market Plus Total No. of shares 28958736 18336659 12545800 10600000 19094658 8883683 98419536 Shares as a % of total number of shares 3.35 2.12 1.45 1.23 2.21 1.03 11.39

Godrej Consumer Products

Stockholder Analysis
Distribution of shareholding by size class as of March 31, 2007

Distribution of shareholding by ownership as of March 31, 2007

Glaxo SmithKline Consumer Healthcare

Shareholding pattern
Particulars of the shareholders Promoters, directors of the promoters and / or persons who are in control / or acting in concert International investors(fii) Indian financial institution Indian mutual funds Nri and ocbs Public and others Current shareholdings Percentage of the sharecapital 43.16% 39.99% 9.34% 17.6% 6.84% 0.26% 25.96% 56.84%

Fund holding pattern

Scheme Birla MNC Fund Date No. of Shares 99392 155000 56213 28662 10000 950 1000000 465000 105026 76036 91027 630785 298683 116859 480000 1382663 45004 269346 647 133794 856 29878 Value 73.57 114.72 41.61 21.21 7.36 0.70 740.15 344.17 77.74 56.28 67.37 466.88 221.07 86.49 349.90 1023.38 33.31 199.36 0.47 96.48 0.62 21.55 %* 3.73 1.13 2.48 2.53 2.58 0.18 2.11 1.33 3.71 3.36 1.82 2.21 1.50 2.38 2.08 1.86 1.64 1.42 0.21 5.69 0.52 3.93

31-DEC07 HDFC Long Term Advantage Fund 31-DEC07 Principal Dividend Yield Fund 31-DEC07 Lotus India Contra Fund 31-DEC07 Franklin FMCG Fund 31-DEC07 DBS Chola Midcap Fund 31-DEC07 HDFC Prudence Fund 31-DEC07 HDFC Top 200 Fund 31-DEC07 UTI MNC Fund 31-DEC07 Birla India Gennext Fund 31-DEC07 Birla Dividend Yield Plus 31-DEC07 UTI Equity Fund 31-DEC07 HSBC Equity Fund 31-DEC07 Principal Resurgent India Equity Fund 31-DEC07 HDFC Mid-Cap Opportunities Fund 31-DEC07 HDFC Equity Fund 31-DEC07 Lotus India Growth Fund 31-DEC07 HDFC Monthly Income Plan - Long Term Plan 31-DEC07 Birla Sun Life Capital Protection Oriented Fund - 3 30-NOVYears 07 Tata Dividend Yield Fund 30-NOV07 Birla Sun Life Capital Protection Oriented Fund - 5 30-NOVYears 07 Tata Life Sciences and Technology Fund 30-NOV07

Tata Young Citizens Fund

30-NOV07 Birla Sun Life Long Term Advantage Fund - Series 30-NOV-I 07 Principal PNB Long Term Equity Fund - 3 Year 30-SEPPlan - Series I 07

8457 134447 144152

6.10 96.95 94.88

0.34 2.20 4.07

Hindustan Unilever Ltd. (HUL)

Shareholding Pattern

Fund holding pattern Sl No . 1 FID Funds (Mauritius) Limited 45804746 Name of the shareholder No. of Shares Shares as a percentage of total no. of shares 2.08

National Insurance Company Ltd

23485505

1.06

The New India Assurance Co Ltd

33623640

1.52

Life Insurance Corpn. Of India

159202663

7.22

TOTAL

262116554

11.88

ITC Ltd.
Categories of Shareholders:
Category Banks, Institutions, and Mutual Funds Foreign Companies Foreign Investors Shares Underlying GDRs NRIs/ Nationals Public and Others Total OCBs/Foreign 2,39,41,653 55,62,61,138 3,75,51,78,860 0.64 14.81 100.00 6,87,00,497 1.83 Institutional 1,20,86,86,701 53,84,43,002 32.19 14.34 Financial Insurance co. 1,35,91,45,869 36.19 No.of shares held Percent

Shareholders with more than 5% share:

Sl.No 1 2 3 Name of the Shareholder Tobacco Manufacturers Ltd Unit Trust of India of India No.of shares held 99,27,82,440 44,55,54,160 Percent 26.44 11.87 11.74

Life Insurance Corporation 44,08,83,480

Marico Industries Ltd.

Share Holding Pattern
Table below shows the distribution of share holding as on date 31-12-2007: No. of Equity No. 2,581 9,690 2,496 3,057 515 401 192 18,932 of Share No. of Shares Held 87.127 2,301,995 2,291,137 8,483,150 3,990,969 8,623,438 583,222,224 609,000,000 Percentage Shareholding 0.01 0.38 0.38 1.39 0.65 1.42 95.77 100.00 of

Shares Held 0-50 51-500 501-1000 1001-5000 5001-10000 10001-50000 50001 & above Total

Holders

Ownership Pattern
The table below shows the categories of Share Holding as on December 31, 2007: Percentag Category No. of Shareholders 25 44 401 8 45 557 17,852 18,932 No. Of Shares held 386,406,520 104,003,333 2,274,648 18,213,461 50,620,015 13,276,362 34,205,661 609,000,000 e of Shareholdi ng Promoters Foreign Institutional Investors NRIs and OCBs Insurance Companies, Banks, and Other Financial Institutions Mutual Funds, including Unit Trust of India Public/Private Ltd. Companies Resident Individuals , Trusts and In Transit Total 63.45 17.08 0.37 2.99 8.31 2.18 5.62 100.00

Nestle India Limited

Ownership Pattern

Ownership Pattern as on 31-12-2007

No of Shares

% Share Holding 61.8467 0.0000 61.8467 19.4583 18.6950 38.1533 100.0000 0.0000 100.0000

Share Holde r 2 0 2 201 44888 45089 45091 0 45091

Demat Share 10457938 0 10457938 18739581 14552201 33291782 43749720 0 43749720

Foreign (Promoter & Group) Indian (Promoter & Group) Total of Promoter Non Promoter (Institution) Non Promoter (Non-Institution) Total Non Promoter Total Promoter & Non Promoter Custodians(Against Depository Receipts) Grand Total

59629954 0 59629954 18760834 18024928 36785762 96415716 0 96415716

Stock holding pattern (

Public Share holding) Institutions

No of Shares Mutual Funds/UTI Financial Institutions/Banks Insurance Companies Foreign Investors Non-Institutions No of Shares Bodies Corporate 143775 530095 1 34459

% Share Holding 5.5 0.03 6 7.92

Share Holder 63 47 14 77

Demat Share 5289861 24446 5789223 7636051

578932 3 Institutional 763610 1

% Share Holding 1.5

Share Holder 927

Demat Share 1358019

Individual shareholders with share capital up to 1 lakh Individual shareholders with share capital excess of 1 lakh Any others NRI + OCB

4 103868 40 584622 9 354109

10.77 6.06 0.37

43330 141 490

7809361 5042830 341991